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Halliburton Co., the largest pressure pumper in North America, is, like its competitors, seeing better drilling efficiencies in the onshore. But even with old equipment going out and new equipment coming in, there likely will be an oversupplied market until late 2014 and possibly into 2015, CEO Dave Lesar said Monday.

The management team shared its insights about the third quarter results and prospects going forward during a conference call. Like its brethren Schlumberger Ltd. and Baker Hughes Inc., which reported on Friday, Halliburton's executives are seeing more North American drilling efficiencies (see Shale Daily, Oct. 21a; Oct. 21b).

Halliburton is rolling out new equipment in North America through its Frac of the Future initiative, which has led to older equipment being retired and moved overseas, with new equipment installed. However, current utilization in North America is about 20% oversupplied today, said Lesar.

"We see oversupply in the market now, though we do see increasing drilling efficiency [at a rate] that is greater than increasing completion efficiency. And because of that, we expect to see attrition continue." As to how long, "I expect, certainly out into next year, late next year or beyond, though any spiking gas activity will certainly take that out very quickly."

COO Jeff Miller said drilling efficiencies are about 20% better than they were a year ago while drilling completion efficiencies are around 12-13% better overall. The overlap is one reason that's led to the stall in fracking market.

"If we think that the drilling efficiencies are up in that 20% range, and we look at completion efficiency...we will see it probably about in that 7%, 8% sort of efficiency in drilling that's outpacing the efficiency in completions.

"I think one of the things that tempers completion efficiency is going to be the size of jobs, and the amount of activity that requires completion actually is getting in some cases, bigger rather than smaller...My outlook is that we continue to add equipment over time" for completions rather than for drilling.

"The U.S. land rig count remained sluggish and the focus from our customers continues to be on pad operations and on drilling efficiency," said Miller. "Multi-well pads account for over half of our customers drilling activities in the North America basins, including the Marcellus, Eagle Ford, Bakken and Niobrara, and we see this percentage increasing, but more important, we see increased service efficiency on horizontal drilling, which is providing the mid-teens percentage reduction in drilling days on a year-over-year basis. Together, these two efficiency factors are contributing to well count that has modestly improved, even in a flat rig environment.

"We are also seeing a trend toward increasing stage counts per well, and in certain basins, increased volumes counts per stage. Already, we are seeing average stage count per well increase by 15-20% year-over-year in the Eagle Ford and the Marcellus."

There should be a seasonal decline in 4Q2013, as its peers also have suggested, "however there are some additional transitory issues we are currently facing," said the CEO. "Due to the recent floods in Colorado, logistical disruptions in the Niobrara, where we have a very high market share, lingering into the fourth quarter, which is continuing to impact our efficiency in cost structure in that basin. These cost inefficiencies should be fixed by the end of the year."

The North America market continues to have "excess supply of pressure pumping equipment, and although this is improving, we anticipate pricing pressure will continue as contracts review during the next quarter or so," Lesar said. "Accordingly, we are already working on adjusting our cost structure.

"Despite these transitory issues, we believe that we will see margin improvement as we go through 2014 for a number of reasons," including the new onshore drilling initiatives. "As we move into 2014 and based on early conversations with our customers, we are anticipating overall spend levels to increase. Our strategy is working well and we intend to stay the course."

Net profits were $706 million (79 cents/share) in 3Q2013, up from $602 million (65 cents) in 3Q2012. Revenue rose 5.1% to $7.5 billion. Halliburton has expanded its offerings overseas and the changes showed. North American revenue rose 1.6% from a year ago, with operating income up 18%. International revenue increased 13% with operating income up 20%.

Managing Editor | Houston, TXCarolyn Davis joined the editorial staff of Intelligence Press Inc. in Houston in May, 2000. Prior to that, she covered regulatory issues for environmental and occupational safety and health publications. She also has worked as a reporter for several daily newspapers in Texas, including the Waco Tribune-Herald, the Temple Daily Telegram and the Killeen Daily Herald. She attended Texas A&M University and received a Bachelor of Arts degree in journalism from the University of Houston.
carolyn.davis@naturalgasintel.com

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